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FGMC notified laid-off 471 employees late Tuesday night that it would pay severance.
KEY TAKEAWAYS
- FGMC says the filing has no impact on closed mortgages.
- Company says it has arranged for financing to fund critical operations.
First Guaranty Mortgage Corp. (FGMC) and its affiliate, Maverick II Holdings LLC, filed for Chapter 11 bankruptcy protection today in the U.S. Bankruptcy Court for the District of Delaware, while also announcing it has “identified one or more potential partners” that can provide financial support.
The bankruptcy filing comes just six days after FGMC laid off more than 400 people during a 10-minute virtual meeting online.
It also comes just two days after FGMC sent a late-night email to all laid-off employees stating it would pay severance, equivalent to one week of pay for each year of service. Employees with less than one year of service will receive one week of pay, the email states.
A company spokesperson confirmed today that the total number of employees laid off on Friday was 471, adding that 134 employees remain on staff.
The email sent Tuesday to laid-off workers, which was shared with National Mortgage Professional by a former employee, said severance pay would be “delivered via direct deposit over the next few business days.” It is not known if all of the severance pay was distributed before the bankruptcy filing.
A Chapter 11 bankruptcy filing allows a business to continue operating while it reorganizes its finances under supervision of the bankruptcy court.
FGMC said the filing is intended to protect the business while “exploring all available restructuring options.” The company said it has begun notifying its regulators and other pertinent parties.
“The action has no impact on closed mortgages, which are already serviced by third parties,” it said in a news release.
It continued, “FGMC has taken action to accommodate the maximum number (of) borrowers who have started but not yet completed the loan process. FGMC is finalizing debtor-in-possession financing that will enable it to close and fund approved consumer loans, under existing terms and conditions.
“In addition, the company has further identified one or more potential partners to provide optionality to support the pipeline of in-process loans. The debtor-in-possession financing, once approved by the court, will also support the company’s operations, including go-forward payments to employees and vendors in the ordinary course and in accordance with bankruptcy provisions.”
FGMC said it is also in the process of developing an employee incentive and retention program, which will require court approval.
In its court filing, FGMC lists 30 creditors who combined are owed more than $34.75 million.
“While we have made considerable efforts to address our ongoing financial challenges related to the state of the mortgage market, we ultimately must do what is best for our borrowers and consumers,” said Aaron Samples, CEO of FGMC. “After careful review and consideration, the company determined that pursuing the protections of Chapter 11 is the right and responsible path at this time.”
He continued, “As part of this process, the company retained a portion of its workforce to manage the day-to-day business. We are requesting that the court approve a variety of motions that will promote a smooth transition for all pertinent parties while also preserving value for the benefit of the Company’s stakeholders.”
FGMC said the Chapter 11 filing was necessitated by significant operating losses and cash flow challenges experienced by the company due to “unforeseen historical adverse market conditions for the mortgage-lending industry, including unanticipated market volatility.”
The company said the “sharp and unexpected decline” in performance reflects the intense pressure on mortgage originations due to the “dramatic collapse of the mortgage refinance market and the weakening mortgage purchase market, which has suffered from a lack of housing inventory and increasing affordability issues.”
“These factors have resulted in significant losses on the company’s total mortgage revenues and overall liquidity constraints,” FGMC said.
The company added that federal law prohibits it from paying amounts owed from obligations arising prior to the June 30, 2022, filing date, without a court order.
Entities owed funds may be eligible to file a claim. Read more about the claims filing process.
